Forecasting critical for strategic planning

The key thing to remember about forecasts in purchasing is that you have to do them, not that they have to be right, Robert Kemp told attendees at a forecasting workshop Monday at the ISM Conference in St. Louis.

You do them because they help in strategic thinking and planning, he said. Kemp, president of Kemp Enterprises, and R. David Nelson, CEO of Best Window Co., reviewed for attendees the factors that adversely affect forecasts, such as changes in lead times, changes in labor markets, changes in money markets, technology changes, political changes and natural disasters.

The best way to avoid surprises like those is to gather as much information as possible. "You have to know history before you can forecast," Kemp said. Kemp and Nelson advised purchasing professionals to continually check leading indicators such as bond yields, the money supply, inventory levels and ISM's Purchasing Managers' (PMI) index as well as other industrial indexes.

But, they should also check lagging indicators, such as labor costs, business spending and prime rates, they said. As for what purchasing should be forecasting: Kemp and Nelson said they should be forecasting quantities, prices, economic change, transportation, capacity and supplier status, among other factors.

And, they should share forecasts with selected key suppliers as part of their strategic planning. Nelson said forecasting is even more critical today than before because of the increased globalization of business.